How a tech startup helps small businesses in India grow

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By Jackson Scher of Quona Capital. We at Quona had the opportunity to host P.K. Khaithan, CEO of one of our portfolio companies, NeoGrowth. During his visit, Jackson and P.K. sat down to discuss lessons learned as a serial entrepreneur, the future of Indian lending, and what separates NeoGrowth from the crowd.

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What is the fundamental mission of NeoGrowth?

I think the mission is clear – to give loans to small businesses using technology and to create a societal change. So that’s very important to us – the impact of the loans that we give on the lives of the people we touch. We go back and we look at our customers – has it helped them to improve their credit profile? Has it helped to move them into the mainstream of borrowing? Can they get a mortgage; can they get a small business loan? We look at job creation, particularly in the lower income group, where unemployment is very high in the country. Have the loans we have given helped to grow the business and helped to create new jobs? We look at encouragement of women entrepreneurs. How many women entrepreneurs have we linked, how many jobs have we created for women? I think that achieving this outcome from our lending solution is an important part of why we’re set up.

On this topic, I wanted to ask you about learning across regions. You’re in the US this week to attend LendIt, and we just mentioned a company in Brazil. What lessons can you bring back India? And do you have a sense of what really will not translate?

The most important questions here are on data availability and regulation. For example, today in a mature market like the US, you have much more data that’s available. Credit bureaus get reporting not only from banks and lenders, but they get massive data from utilities, from telecom companies, etc. When you look at the small merchant who may not have large trade lines, that data becomes very meaningful. In India, it’s just not available. All we get is the banking data and the financial data. The second aspect would be culture. There are things which you may do culturally in one market that you may not do in the other. And to that extent, all markets are unique. Certain things work, so in India what we’ve learned is touch is very important. Maybe there would be other markets where the merchant is just too busy to be disturbed and he’d rather just have an app on which he lives his entire life. So we have to be sensitive to the cultural differences as well.

Can you share some lessons learned as a repeat entrepreneur?

Oh yes – you’ve got to make mistakes. You absolutely must. And it’s good to be very open about it. You did something wrong, what did you learn from that – what are you doing to correct/prevent it from happening a second time? The other lesson that we are still learning is we tend to get very obsessed with the quarter and with the year. And when we are growing at 5%, 10% month on month, it kind of consumes you. When we look ahead to our aspirations, it’s certainly beginning to dawn on us that there’s no way we can get there just doing more of what we are doing today. We have to do something completely different. So we need to be sensitive to where we are headed, and to invest some time and resources in getting there, while still reaching our short-term goals.

How has SME Lending changed in India in the last 5 or 10 years, what are some of the reasons for those changes, and what changes do you foresee over the next few years?

If I look at the last 5-10 years, very little has changed. SME Lending still sees government quotas for priority sectors, so it’s being done a little begrudgingly. As such, banks are very nervous about the quality of the portfolio. There’s a deep element of mistrust on both sides. I’m hoping that a whole host of new businesses get into the space to change it – we are already seeing a number of startups getting involved. So there’s definitely huge excitement around the space, and I think that it is going to be these startups and fintech companies that are going to change the game completely. Banks will continue to be a large source of capital, but it is these new companies which are going to come in there and do the customer acquisition, the underwriting, and the portfolio management. They will help to collect and distribute the money better and in a more secure way.

Thank you so much, P.K., for taking the time to chat with us this afternoon! We’re looking forward to seeing NeoGrowth continue to disrupt the Indian lending market.

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Enjoy part two of this interview, where we discuss the importance of the personal touch and how scaling up changes client interaction.

Quona Capital is an early growth-stage venture firm focused on financial technology for underserved consumers and businesses in emerging markets. Quona, which includes alumni from Accion’s Frontier Investments Group, also manages the portfolio of fintech investments made by Frontier that continue to be held by Accion. Quona leverages Accion’s global brand, technical specialists, and institutional relationships to supports its entrepreneurs and build a more financially inclusive world.